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Ceturtdiena 13.12.2018 | Name days: Veldze, Lūcija
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Nordic Outlook: after euphoria from economic growth, countries should prepare for sudden drop

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUThe global economy is pushing forward with confidence. Optimism is noticed in all countries considered to be the engines behind the global economy. This trend will create a positive vector in Latvia as well. We can expect a rise in wages, reduction of unemployment and growing export indexes in the near future.

However, it is highly important to prepare for an unavoidable period of economic decline, which always follows up periods of rapid economic growth, as concluded in SEB Bank’s latest Nordic Outlook.

«Last year, Baltic States demonstrated stable economic growth, which relied largely on good export results. This year’s GDP growth will continue at a healthy rate, largely thanks to active consumption and beneficial situation on export markets. The largest problem is associated with the tense situation with the labour market, which could limit potential growth. Latvia’s GDP outlook is 4.1% for 2018, whereas outlooks for Lithuania and Estonia are 3.2% and 3.5%, respectively,» says SEB Bank’s macroeconomic expert Dainis Gašpuitis.

«Although perspectives are positive for the next two years, it is important to consider preparations for the inevitable decline,» adds the economist.

Global economic growth is speeding up

SEB Bank’s experts add that global economic growth improves businesses’ profit indexes and helps create a good environment for investments. It ensures a positive effect on stock markets. «Strong labour markets and growing welfare improves private consumption. Use of this growing capacity reaches a level that secures new capital expenditures. China will continue realizing controlled slowdown. In spite of that, rapidly growing economies will likely grow by more than 5%. The global growth is currently demonstrating dynamic results, which is typical for the final stage of the cycle,» experts say.

USA: happiness for now, concerns for the future

The bank’s experts believe US President Donald Trump’s proposed tax changes have created some optimism in the country. Those changes are also the reason why the US Federal Reserve system has plans to accelerate the pace of key interest rates. «The effect of tax declines established by the Trump administration may be larger than expected, especially in 2019. As for this year – we expect US GDP to grow 2.8%,» says Gašpuitis.

He notes that there are serious concerns for the next couple of years in spite of optimistic projections. Tax decline in USA under the current economic cycle is already too late. «It will reduce available space for fiscal stimuli in a time when they will be needed the most. There is a great risk of monetary policy instruments becoming useless. The side-effect from lasting and overly stimulating monetary policy in recent years has been weak pressure in the direction of reforms and good environment for new financial bubbles.»

SEB Bank notes that political instability has reduced in Eurozone. Economic mood there creates a stable foundation for growth. It allows European Central Bank to move towards normalizing the monetary policy more quickly. «ECB plans to end the bond purchasing programme in September. In 2019, the bank will start increasing interest rates again. Eurozone’s economic resilience and more stable political situation have increased trust in euro as a reserve currency. Attempts made by central banks and other organizations to increase reserves in euro will help the currency become stronger in time. Growth in Eurozone will reach 2.5% this year,» SEB Bank continues.

Experts say that Britain’s economy is hampered by Brexit. «If the agreement on new relations between UK and EU are reached in time, Britain could avoid a decline and instead have a soft landing. Britain’s GDP will grow by 1.4% this year.»

Ref: 224.109.109.2440


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